Broadcom Stock Hits Record High Before Earnings

Broadcom (AVGO) shares rose nearly 3% to a record high after announcing it has begun shipping its Tomahawk 6 chip designed to accelerate AI processing, ahead of its fiscal second-quarter report on June 5th. Citigroup raised its price target on AVGO to $276 from $210 following the announcement. Options traders are pricing in a 10% swing post-earnings, with call volume significantly outpacing puts.

Analysis

Broadcom Inc. (AVGO) shares experienced a notable uptick, rising 2.9% to $255.89 and reaching a record peak of $257.88, driven by the announcement that the company has commenced shipping its Tomahawk 6 chip, specifically engineered to accelerate artificial intelligence workloads. This development precedes Broadcom's fiscal second-quarter earnings report, scheduled for release after market close on Thursday, June 5. In reaction to the news, Citigroup raised its price objective for AVGO to $276 from $210, signaling bullish sentiment. Despite this upgrade, the stock's 12-month consensus target price of $243.49 currently represents a discount to its trading level, suggesting potential for further upward revisions from analysts. Broadcom's stock has demonstrated strong momentum, boasting a 94.1% year-over-year gain, trading significantly above all its short- and long-term moving averages following a sustained rally from early-April lows, and recently surpassing resistance at the $240 mark. The market anticipates that Broadcom's upcoming quarterly results might reflect the positive performance seen by sector peer Nvidia (NVDA). Historically, AVGO has shown significant post-earnings price movements, with five of the last eight reports resulting in a higher finish, including a 24.4% surge in December, and an average next-day swing of 9.2% over the past two years. Current options market activity indicates expectations for an even larger move of 10% this time, with call volume (121,000 contracts) substantially exceeding put volume (81,000 contracts), and the weekly 6/6 250-strike call being the most active. Furthermore, Broadcom's Schaeffer's Volatility Scorecard (SVS) of 82 out of 100 suggests the stock has a track record of outperforming options traders' volatility expectations over the past year, which could be advantageous for options buyers.

Key Decisions for Investors

• The commencement of Tomahawk 6 chip shipments for AI applications and Citigroup's upward revision of its price target provide positive signals for Broadcom's growth trajectory, particularly within the expanding AI sector.
• Investors should closely monitor the fiscal second-quarter earnings report on June 5th, as options markets are pricing in a substantial 10% price movement, consistent with the stock's historical pattern of significant post-earnings volatility.
• Given Broadcom's Schaeffer's Volatility Scorecard of 82, options traders might consider strategies that benefit from realized volatility potentially exceeding priced volatility, especially around the earnings announcement.